Study slams PhilHealth’s outdated payment system

A new study by the Philippine Institute for Development Studies (PIDS) warns that the Philippine Health Insurance Corp.’s (PhilHealth) use of obsolete payment rates is harming both hospitals and patients, urging the national insurer to immediately transition to a modern reimbursement system.

The PIDS study, titled “Kabayarang Sapat, Serbisyong Tapat, DRG Dapat: Transitioning from PhilHealth All Case Rates to a Fairer, Responsive, and Transparent Provider Payment System (A Retrospective Policy Analysis of the All Case Rates from 2018 to 2023),” reveals that the insurer’s “All Case Rates” (ACR) system, introduced in 2013, has failed to keep pace with the true cost of health care. The authors called for PhilHealth to abandon the ACR model and adopt the Diagnosis-Related Groups (DRG) payment model, which would ensure fair compensation for hospitals and protect patients from excessive out-of-pocket expenses.

The ACR system pays a fixed amount per illness or procedure, regardless of the patient’s condition severity. The study found that 99.9 percent of the 8,869 existing case rates have not been updated since 2013.

It says that between 2014 and 2023, the cost of hospital inpatient services rose by an average of 3.4 percent each year. This lack of rate updates has caused the real value of PhilHealth’s reimbursements to drop by about 40 percent over the past decade.

“While PhilHealth’s nominal reimbursement has remained the same, its real peso value has declined, and hospital charges have continued to rise,” the authors wrote.

The case rate for a normal childbirth, for instance, remains P6,500. However, due to inflation, the study noted this amount was worth only P3,900 in 2023, significantly less than what hospitals actually spend.

As a consequence, 98.8 percent of hospital claims now exceed the case rate. Average hospital charges increased by 51 percent—from P23,852 to P36,130—between 2018 and 2023, while PhilHealth reimbursements stalled at around P11,000. Hospitals are often operating at a loss for covered services, forcing patients to cover the remaining balance. Out-of-pocket payments still comprise about 44 percent of total health spending.

The ACR’s flat rate also fails to account for case severity or comorbidities. The system currently pays for only up to two case rates per patient, with the second diagnosis reimbursed at just 50 percent. This structure penalizes hospitals for treating complex or multiple-condition patients, passing the financial risk onto the patients, the authors cautioned.

In addition to insufficient payments, hospitals face severe payment delays. In 2023, claims that did not require corrections took a median of 87 days to process, while those returned for corrections averaged 221 days, or more than seven months.

The authors noted these delays, which strain hospital cash flow, threaten the financial stability of smaller and provincial facilities.

To address these systemic issues, the researchers recommend that PhilHealth adopt the DRG payment model, an evidence-based system that ensures reimbursements match the actual complexity and resource use of patient care.

The study also called for a shift toward the prospective payment system mandated by the Universal Health Care (UHC) Law, such as a Global Budget arrangement. This would provide hospitals with frontloaded funds based on expected service volume and performance at the start of the fiscal period, instead of forcing them to wait months for individual claim reimbursements.

The authors said that resolving the design issues “requires reform to the entire provider payment mechanism as mandated by the UHC Law,” adding that one-off rate increases will not solve the deeper design flaws.

PIDS plans to host a forum to further disseminate information and discuss health financing reforms needed to build a more equitable and resilient health system.